Landlords Should Understand Tenant Transfer Provisions in Commercial Leases
If you own commercial property or other property where there are multiple tenants, you may be faced with the question of how to deal with tenants wanting to get out of their lease by transferring some or all of their rights in the lease to other people or businesses. Whether to allow these transfers is both a business and a legal decision, but certainly, understanding the issues surrounding how they are done can be helpful in making such decisions.
Assignments and Subleases
We are specifically talking about tenants who are not looking to just break their lease and disappear, but looking to find a replacement in full or in part for them under the lease. This is normally done in one of two way: An assignment of the tenant’s rights in the lease, and a sublease of part of the tenant’s interest.
An assignment is a complete replacement of the tenant with another tenant. It is essentially the first tenant walking away from any obligation under the lease, and ceasing to be a party under the lease, in favor of the new tenant, who assumes all duties, rights and obligations of the first. There is no longer any contractual relationship between you, the landlord, and the first tenant.
A sublease is where a tenant rents out to another tenant part of the property. The tenant in effect becomes a landlord to the subtenant. Here, the landlord finds itself with a new party renting some of its property, with whom it may have no relationship, but the landlord maintains a contractual relationship with the first tenant, who remains responsible to the landlord. The tenant and subtenant may even have their own, separate lease.
Do You Allow These?
Whether to allow either of these transfers is up to you. If you have conducted an extensive background check of the tenant, or diligence into the tenants business practices before leasing, you may not want to allow the tenant to assign its rights to another party.
Subleasing may be better, because the original tenant is still in the game, but there is still a party in your property that you may not know, have a contract with, or who may not have any obligation to you. Additionally, you may want to ensure that if that subtenant is paying the tenant any rent, the landlord be entitled to some or all of it.
It’s also important to make sure that a subtenant signs a lease or other document making it responsible to you for lease violations, the same way the original tenant is. Responsibility for damage to the property, limitations of liability, and agreement to abide by rules and regulations of the property and the municipality, all areas covered by the original lease between the landlord and the tenant, should also be memorialized in an agreement between the subtenant and the landlord.
Whatever you want to allow and however you want to do it, make sure everything is set out in your written lease with the tenant, and that you have a qualified attorney review your lease. Contact Tampa business attorney David Toback to discuss reviewing leases and important business contracts.